Time to Define a "Small Business" in America

America's small businesses get a lot of attention during political campaigns but what, exactly, is a small business?

If your thoughts run to images of small Mom & Pop operations, you may be surprised.

Industry standards may vary but the US Government uses the Small Business Administration's (SBA) Table of Small Business Size Standards (pdf) to determine business size by industry classification, yearly sales or the number of employees. (Business size determines eligibility to qualify for Federal Government programs.) The SBA Act also states: "...a small business concern is one that is independently owned and operated and which is not dominant in its field of operation."

Size standards vary by classification. The average standards, by occurrence in the SBA table, are 500 employees or $7 million a year in sales. A very general rule-of-thumb is the size of most manufacturers and wholesalers is determined by the number of employees while the size of the remaining businesses are determined by yearly receipts. (Exceptions can be found in the SBA Tables.)

Using the average standards above, the following is an estimate of how they apply.

Census Bureau data indicates there were 25,409,525 firms in the US in 2004. These firms are broken down into nonemployer firms (no payroll) and employer firms (with payroll).

Nonemployer firms comprised approx. 76.8 percent (19,523,741) of US firms in 2004 and generated approx. $887 billion in receipts. This works out to an average of about $45.4K per firm per year. Using our average receipt perimeter, 100 percent of these businesses would fall into the small business category. (I know there will be exceptions but this is an imperfect world.)

In 2004, there were 5,885,784 firms with employees and they broke down as follows:

-Firms with no employees as of 03/12, but with payroll during the year: 802,034 (13.6 percent)
-Firms with 1 to 4 employees: 2,777,680 (47.2 percent)
-Firms with 5 to 9 employees: 1,043,448 (17.7 percent)
-Firms with 10 to 19 employees: 632,682 (10.7 percent)
-Firms with 20 to 99 employees: 526,355 (8.9 percent)
-Firms with 100 to 499 employees: 86,538 (1.5 percent)
-Firms with 500 employees or more: 17,047 ( .3 percent)

Using the size average of 500 employees, 99 percent of employer businesses would be small businesses.

A breakdown of employer firm receipts for 2004 is not available but the figures for 2002 should provide a similar percentage result.

In 2002, there were 5,697,759 employer firms and their yearly receipts broke down as follows:

-Less than $100 thousand: 1,291,552 (22.7 percent)
-$100 to $499 thousand: 2,387,780 (41.9 percent)
-$500 to $999 thousand: 819,513 (14.4 percent)
-$1 to $4.9 million: 906,936 (15.9 percent)
-Over $5 million: 291,978 (5.1 percent)

The statistics don't break at $7M but approximately 95 percent of employer firms had receipts of less than $5 million dollars.

Taking an average of our three percentages and employing the SWAG method, it would appear the small business designation would fit somewhere between 90 percent to 98 percent of all businesses in the US (Using SBA standards.).

Now you know.

By the way, remember Mom & Pop? If Mom & Pop own a gift and novelty store, they can sell $7,000,000 worth of stuff a year. (If they also have an Internet store, their sales can total $25 million.)

A few curious standards for your entertainment:

-Most farm related activities, including poultry production, have a annual receipt ceiling of $750,000... except "Chicken Egg Production" which has a ceiling of $5 million.

-Most Food Manufacturing classifications have employee limits of 500 -- Breakfast Cereal Manufacturers are allowed 1000 employees.

-The Beverage and Tobacco Product Manufacturing classification averages 500 employees... except Cigarette Manufacturing which is allowed 1000.

And, finally, our friend, Joe the Plumber, can post yearly receipts up to $14 million and still be considered a small businessman.